Penalty threat on UMPP coal in draft norms

The ministry of power has proposed to allow buyers of electricity from any Ultra Mega Power Project (UMPP) to seek cancellation of the coal linkage/block allotted to the company running the project, in case of any default in supply. The proposal forms part of the draft Power Purchase Agreement (PPA) guidelines that have been issued for public discussion.

The draft does not address the issue of increase in rates due to escalation in fuel cost. In the existing purchase agreement for UMPPs, fuel is excluded from the force majeure provisions, the legal escape route for resiling on commitments due to circumstances outside one’s control. It is, instead, mentioned under Clause (a) of Article 12.4 of the PPA, that lists out the ‘force majeure exclusions’.
Besides, the ‘non-natural force majeure events’ specified in the PPA do not include actions by a foreign government. Even in the revised draft, there is no change in this.

Both Tata Power and Reliance Power, which had won the bids for the UMPPs at Mundra (Gujarat) and Krishnapatnam (Andhra), respectively, on international competitive rate-based bidding, have been asking for a price revision due to the escalating cost of import of coal, following the Indonesian government’s decision to benchmark their prices to those of the international market.

With regard to default, the draft says, “The PPA would contain a provision wherein, in the event there is any default on the part of the seller, in the specific performance of the PPA, the procurer shall have a right to request the ministry of power to cancel the coal linkage/coal block allotted in favour of the seller or seek an appropriate order from the Competent Court directing the load dispatch centre to restrict the dispatch of power generated by seller to third parties,” the ministry said in the revised draft posted on the website.

The ministry has asked for comments from all stakeholders by February 29.

All the new suggestions put forward by the ministry, combined with the earlier opinion by the law ministry, the Planning Commission and an international legal expert will be sent to an empowered Group of Ministers for a final decision. The new guidelines would not be applicable retrospectively, but only to new projects.

Existing UMPP documents were drafted seven years ago. One UMPP has been awarded to Tata Power while Reliance Power bagged three of the four awarded UMPPs. The company is setting up the 4,000-mw projects at Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tiliaya in Jharkhand.

The power ministry has sought comments from Central Electricity Authority, Central Electricity Regulatory Commission, state regulatory commissions and principal secretaries of all states on the draft documents. Need for alteration of UMPP documents was felt as they were originally drafted about seven year ago.

A Power Finance Corp executive said the ministry has proposed more than 100 changes in the standard bidding documents for ultra mega power projects.

The power ministry has sought to make the bidding process stringent by increasing networth requirement and performance guarantees. Moreover, only companies with commissioned core sector projects can participate in the bidding. Power producers have welcomed the move to remove restrictions on the number of UMPPs a company can bid for. However, fuel cost remains an issue.

The existing bid documents and the proposed new ones contain a list of circumstances for which the power producer cannot claim force majeure. Fuel is listed in the “exclusion clause”, contrary to industry demand.

“We welcome the removal of restrictive clause regarding participation, however the fuel should be taken away from the exclusion clause. Then it will serve the purpose,” said Ashok Khurana, director general, Association of Power Producers.

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